Eye-Watering Onion Prices Send India's Inflation To 6-Month High

A surprise surge in food prices drives India's inflation to a six-month high, making basic commodities a luxury for several middle class households.

NEW DELHI, INDIA (SEPTEMBER 16, 2013) (REUTERS) - India's headline inflation hit a six-month high in August, driven by a surprise surge in food prices, hardening the case for central bank governor Raghuram Rajan to keep interest rates high at his first policy meeting later this week.

Food inflation accelerated to a three-year high of 18.18 percent in August, government data released on Monday (September 17) showed, driving overall inflation to a higher-than-expected 6.1 percent.

Recent hikes in fuel prices also spurred the jump in the Wholesale Price Index.

Onions, a staple ingredient in most Indian dishes, have led the price charge with a 245 percent jump in prices this August compared to a year ago, while other vegetables shot up by 77 percent. Eggs, meat and fish were up nearly 19 percent.

"We still have inflation here. Where once we used to pay 5,000 rupees (80 USD) now we have to spend at least 7,000 to 8,000 rupees for it (per truck of produce). The increase in price of onions is only because traders are hoarding them," said vegetable stall owner S. K. Arora.

Late planting and disruptions in supplies of vegetables and onions due to heavy summer rains have stoked food inflation.

"They (prices) are increasing day by day, due to the present rate of inflation you can see. For a common man now it's becoming so, you see, they can't even by a single fruit because if we come to prices like onions, they are striking very highly. The basic reason which I can find behind that is due to the supply, the supply is very low," said a college student Nani Vajpayee.

Farmers are expecting food prices to start moderating from October onwards as supplies rise from crops planted after the much better monsoon season. However, heavy rainfall has resulted in flooding in some areas of the country making it difficult to get produce to market.

"One reason is of course onions are being hoarded, as it's come in the papers in certain places but otherwise due to the heavy rainfall a lot of the vegetables that grow seasonally, because of the floods, so their prices go up too, usually go up during the monsoon. But this time they are slightly more as there is inflation all around I guess with petrol prices going up and everything actually," said Asha, a housewife

More price pressure could come in the form of a government plan to hike retail fuel prices by nearly 10 percent to ease its oil subsidy burden, which has risen after the rupee's fall and on higher crude prices.

Analysts estimate that such an increase in diesel prices would directly add 0.5 percent to headline inflation.

"We have been experiencing sporadic (sic) on specific food inflation in relation to certain items or commodities of food consumption and these have been episodic in the last few years," said Mukesh Anand, Assistant Professor at the economic think-tank National Institute of Public Finance and Policy in New Delhi.

Rising prices of onions are anger voters and can quickly become a political issue. India is due to hold its general election within eight months.